MNY130: Should You Buy A Vacation Home?

How changes in financial circumstances, property markets, zoning rules and personal taste can make owning an illiquid vacation property a risky proposition, but why we bought our dream place anyway (and then sold it).

Summary Article

Should You Buy A Vacation Home?

In the early 1990s, my wife LaPriel and I flew to Idaho from our home in Ohio to visit her family. While there we took a long drive up U.S. 20 to Ashton, then down Idaho State Highway 32 to Teton Valley, over the mountain pass to Swan Valley and then back to their place near Blackfoot.

This was my first trip along this route and I was completely smitten with the rolling green hills of seed potatoes and barley, pine and aspen forests and the Teton mountain range in the background.

Just east of Lamont, Idaho we reached a hilltop that overlooks the entire valley and the Teton range. There we found a for sale sign on an empty 10 acre lot filled with aspens and the most incredible view I had ever seen. The cost was $80,000.

Unfortunately, I was only a couple of years out of graduate school, and we had recently bought our first home. We didn’t have the money to buy vacation property, but the seed was planted. Some day we would have a vacation home in Idaho overlooking the Tetons.

Life happened. A new job. Two more kids. Education expenses. A move to Idaho into a subdivision without mountain views. A national housing and property bubble that sent Teton Valley land prices out of reach.

Buying The Farm

In 2011, the timing finally seemed right. Land prices had fallen back to reasonable levels, and we had the funds to purchase a vacation property.

We looked at only one piece of ground: an 80 acre farm with a sprawling ranch home, a barn, shop, pastures, grain silos and other out buildings on a quiet dirt road with a four peak view of the Tetons.

We couldn’t believe it was so affordable. Sure the house was outdated and infested with mice after sitting empty for four years, but the house could be torn down or remodeled.

We bought it. And began remodeling the home the next spring.

It’s been five years since we purchased our dream vacation place. This week we are moving everything out and next week we close on the sale of the house, barn and 40 acres. We’ll keep the remaining 40 acres of farmed ground for now.

Here’s what we learned owning a vacation home, and what you should consider before you buy your dream property.

Financial Circumstances Change

Had I known I would quit my job and “retire” a year after buying our farm I never would have bought it. Houses and property can be incredibly illiquid depending on the market so once a decision is made it is not always easy to switch course.

Our primary residence and our second home and farm were illiquid assets that comprised a large percentage of our net worth, but they weren’t generating any income.

Meanwhile, interest rates declined, reducing the amount of money that could be earned from our investment portfolio unless we increased risk.

Despite the drop in income, the costs of owning so much property was increasing. Property taxes and insurance costs rose, and utilities needed to be paid all year even if we are only at our property a few weeks during the summer.

Last April with our kids off to college and other activities, LaPriel and I sold our primary residence in Rexburg and moved to the farm full time. This would allow us to reduce costs and try out country living.

Properties and Rules Change

In our excitement over our farm purchase, we didn’t pay much attention to an abandoned gravel pit across the road and down a bit from our farm. It looked like it hadn’t been used in years and it hadn’t.

But then three years into our ownership, the gravel pit came to life. Heavy equipment was moved into to dig gravel and dump trucks drove by our home every few minutes during the work week carrying rock to build a road in the hills behind our house.

It turns out the county owned and started the pit in 1995 with the expectation it would be used for ten years to access gravel for county road projects. But in 2008, the county auctioned the pit and the surrounding land to a private developer as part of an agreement for the developer to build the county a new courthouse.

Six years later the developer leased out the pit to a local nursery, all using the original conditional use permit issued by the county fifteen years earlier.

The point is property uses change as do the rules. Apartment owners in New York City who bought units in the city with the intent of using Airbnb to make money on short-term rentals when they weren’t in town now find the state has passed a new law prohibiting short-term rentals in New York City if the owner isn’t present. Owners who ignore the new law face fines up to $7500.

Living Full Time at a Property Is Not the Same as Vacation

LaPriel and I have lived full time on the farm for six months now. We have enjoyed making new friends and watching how the light changes on the mountains as the seasons pass. We are more aware of the lunar cycles and the star constellations. Observing the eagles, kestrels, western bluebirds and other bird life has been incredible. We have greater empathy for the risks and trials of those raising crops and cattle in this valley.

But we have also come to realize that the serenity of getting away from it all during vacation can be a bit isolating as the days turn to weeks and to months. The nearest grocery store is 13 miles one way. A drive to post office and gas station is 18 miles round trip. We can go an entire day and not see a single person outside.

In short, we are used to living in a town or city where there is more activity. More people. So we have sold our farmhouse and are moving close to downtown in Idaho Falls.

Prototyping Your Life

Friends accuse us of being nomads, but we are prototyping different ways of living. Bill Burnett and Dave Evans write in their book, “Designing Your Life” that “when you have a bias to action, you are committed to building your way forward. There is no sitting on the beach just thinking what you are going to do. There is only getting in the game. Designers try things. They test things out. They create proto-type after proto-type, failing often until they what works and what solves the problem.”

The key to prototyping is to minimize the consequences when the experiment doesn’t work out as expected. Given how illiquid vacation properties can be, most people are better off renting at various times of the year at their dream locale to make sure they really want to own a second home there given how financial circumstances, property rules and personal tastes can change.